What’s Tom Gardner’s First Ever Marijuana Stock Recommendation?

Solving the teaser pitch from Motley Fool's new IPO Trailblazers service

By Travis Johnson, Stock Gumshoe, July 25, 2019

I did miss a few things while I was on vacation, and one of them was the briefly-teased “First official marijuana recommendation” from Motley Fool co-founder Tom Gardner… and that intrigued me enough to go back and dig into the ad from early July, even though the ad is no longer active and the service they’re selling is not currently “open” for subscriptions.

The ad was for a new Motley Fool service called IPO Trailblazers, and I got it right before the Fourth of July holiday. Here’s what caught my eye:

“Motley Fool co-founder & CEO Tom Gardner just made his first official marijuana recommendation in the history of the company!

“… it’s also the first-ever pure-play marijuana stock to be officially recommended by any analyst here at The Motley Fool, outside of those in our dedicated cannabis service, Marijuana Masters!”

That doesn’t mean this is the first time marijuana stocks have come up at the Fool, of course, and Tom Gardner has been attached to some of those as well — his services have often touted Shopify (SHOP) as a marijuana play because of its role in facilitating online cannabis sales in Ontario, with the stock doing exceptionally well (though mostly not because of marijuana), and I sleuthed out that he was touting (disastrously, it turns out) Namaste Technologies (N.V, NXTTF) back in October as a way to lend his name to that Marijuana Masters newsletter.

But it sounds like they’re getting a bit more official now, so what’s the stock?

“Tom Gardner’s first-ever marijuana recommendation is actually the No. 1 CBD company by market share.

“If you know anything about the cannabis market, you know the CBD side of the industry is infinitely less regulated than the THC side, which is the drug in marijuana that actually gets you “high.”

“You’ve probably even seen CBD products at your local CVS or Walgreens.”

OK, so not really marijuana but (probably hemp-derived) cannabidiol. So that makes it a little more palatable for some folks than the still-technically-illegal US marijuana companies, I suppose. What else?

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We do get some numbers….

“74% year-over-year revenue growth in 2018….

“… analysts expecting revenue to more than double in 2019… projecting it to increase sales by an additional 153% on top of that in 2020.

“$69 million cash stockpile, with minimal long-term debt.”

And it is apparently already profitable, which is a bit unusual in the US cannabis sector… and that it has only been public since September, but has risen 35% since then.

Other clues? Indeed, we end up with almost an embarrassment of them…

“Its financials are so impressive it recently was able to attract the head of Kellogg’s $3 billion snack business to join it as CEO.”

And…

“The company’s market cap sits at just a little more than half a billion dollars. It’s still tiny!”

So what is the stock? Well, they say that they were releasing it for “free” at the time, though I didn’t click through to their promo video at the time (it’s offline now) and I don’t know whether that means really free, or free if you sign up for that premium newsletter service.

But I can, at least, let you know the answer: This must be Charlotte’s Web (CWEB in Toronto, CWBHF OTC in the US), a Colorado Hemp/CBD company that we’ve covered before.

And no, it’s not a “just over half a billion” market cap — though it appears that way in a lot of places. From what I can tell given the latest filings, they actually have 93 million shares outstanding — or 106 million if you want to be more conservative and include the (mostly way-in-the-money) options from the founders and early shareholders. At a US$14 share price (it’s listed in Canada, but is a US company and does its business in dollars so I try to avoid thinking in C$ with this one), that’s a market cap of $1.3-1.5 billion.

So that’s the semi-hidden valuation challenge here — their $78 million in revenue and $11 million in net income sound substantially more impressive for a $600 million company (which is how it appears on a lot of websites) than for a $1.5 billion company. Though, it must be said, trading at 20X sales is not that unusual anymore for a high-growth company, and Charlotte’s Web is growing revenue quickly and has been profitable since before they went public last fall, so you can find reasons for optimism (if the analysts are right, it’s trading at only 4X the expected 2020 sales).

What Charlotte’s Web really is, though, is a bet on brand leadership. Interest in hemp production has grown quickly as the US government has begun to loosen the rules and allow hemp production, and as non-THC CBD products have quickly spread into mainstream retailers (though regulations and legality are still open questions for a lot of these products, and marketing or interstate sale of CBD supplements is still probably technically illegal, per the FDA).

Despite that uncertainty, however (and the uncertainty is presumably why Charlotte’s Web is listed in Toronto, not in New York — no US CBD or marijuana companies are US-listed, mostly because you can’t list an illegal business), Charlotte’s Web is selling a lot of CBD products, establishing what looks like a pretty strong brand, and making quite a bit of money.

So this one is pretty tempting, and I’ve been looking in on it from time to time over the past nine months because I do think that the “wellness” and CBD end of the cannabis business probably has a lot of potential as regulations clear up, and because it looks to me like they have a good chance of establishing strong CBD brand leadership in the US that could persist.

There are still lots of ways it could go wrong, of course, particularly if there’s a harsher FDA crackdown on CBD sales pending more study, but it could also go wrong as the business evolves because there might not be a lot of “secrets” or advantages in this business that meaningfully differentiate one product from another — which means it could become a commodity business, or it could become an oligopoly with a few large brands that dominate things, and brands can be expensive to build.

They did hire new leadership, including that teased executive from Kellogg’s (new CEO Deanie Elsner) as well as a “chief customer officer” who came from the pharmaceutical world, so you can see their focus on consumer packaged goods and health-related marketing, and their website is certainly appealing and they have some good early distribution (particularly for a “it could still end up being illegal” product) and, as far as I can tell, a good brand presence in the natural supplements space and a good story behind the product.

So is that story and possible brand leadership worth investing in? So far, I come back to “maybe,” but the fact that the FDA is working with the hemp industry, and the report that Charlotte’s Web has kept ramping up sales and planting more acres, and has built up their retail footprint dramatically so far this year, pushes me over slightly into the “let’s dip a toe in the water” category.

I love the strong revenue growth and the focus on building that brand, and that’s been consistent over the eight or nine months that I’ve been checking in on the shares… and the few analysts who follow the stock do have impressive growth estimates ($135 million in revenue this year, growing to $347 million in 2020 and $444 million in 2021), but this is also a really early stage company and we have to take those estimates (there are only three or four analysts providing them) with even more of a grain of salt than usual.

And I’m impressed by the fact that they now have four national retail partners (supermarket/drugstore retailers) and 6,000+ selling locations, more than a 50% increase from the end of 2018 — so the business looks good, growth looks good, and the potential market could be very large. I’m also pleased to see that they’ve moved (at the end of May) to the Toronto stock exchange from the little Canadian Securities Exchange. If it wasn’t for the regulatory question, this would be an easy speculation to make — but, of course, I could be wrong about their relative brand strength, and if it wasn’t for the regulatory question there would probably also be even more competitors spending heavily to take share.

But regulation is a very open question and probably the leading concern… the FDA had a hearing at the end of May and has been posting updates and warnings for consumers, but it will presumably be a while before the implied “we’ll work with you” promise leads to actual rules, and a lot of big retailers will likely wait until CBD supplements are explicitly legal to place meaningful orders or push products with marketing.

And indeed, though most pot-related stocks have been weak of late, it seems likely that some of the weakness in the last day or two with CWEB shares probably comes from the reminder that the FDA is paying attention — the FDA issued a warning letter this week to Curaleaf for the improper CBD health claims they had on their website, and that seemed to worry investors in other companies who sell CBD products, like CWEB. It wasn’t really “industry changing news,” from what I can tell, the FDA has issued dozens of similar letters to other hemp/CBD companies over the past four or five years, and Charlotte’s Web received a similar letter in 2017. My impression is that CWEB is already in compliance with those concerns and shouldn’t be at risk of being dinged again, they’ve already made their adjustments to their labeling and marketing language — though that doesn’t, of course, mean they won’t face changes or challenges as the regulatory environment evolves.

So with those risks at front of mind, buttressed by really impressive revenue growth, I’m taking my “I’m impressed” sentiment and channeling it into a small position for now. I’ll let you know how it goes.

Disclosure: I own shares of Shopify and Charlotte’s Web among the companies mentioned above. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.


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hedy1234
Member
๐Ÿ‘1572
hedy1234

I have a position in this one.
Do you still have IIPR?

eleanor
Irregular
๐Ÿ‘166
eleanor

Good luck to us all. I also have a position in Charlotte.

clarkf
Member
๐Ÿ‘4
clarkf

I had a position in CWBHF but recently sold it during the downturn in the sector, but looking for a re-entry point. Great write-up, thanks!

docdill
Member
๐Ÿ‘9
docdill

My problem with this product is the lack of one of Mr. Omaha’s principles: There is no moat! Anyone can grow the MJ and hemp products and there is no protection from infringement. Yes it is a wide open wild west with tremendous opportunities, but unless you have a barb wire fence around your livestock the rustlers will eat your profits – if I am allowed to wildly mix metaphors.

narr01
Member
๐Ÿ‘54
narr01

That’s really the problem with practically all of the marijuana companies. But if there’s a chance of any of them, it’s those that are able to establish a brand. Charlotte’s Web is pretty close to that, so I think it’s a very reasonable choice, iff you decide to invest in the space.

Chuck P
Guest
Chuck P

Your right, anyone can grow pot in their closet with a hydroponic setup, but the hemp grown for CBD oil is not very easy. It’s a major farming operation involving many acres and lots of equipment.

Most states, if not all, require a license to grow CDB hemp for oil. Then you have to harvest the seed and plant, ship tons of the stuff to specialized processors for extraction and fiber recycling who are few and far between right now.

Dave S.
Guest
Dave S.

In a closet w/ a hydroponic setup? Why? Secrecy is no longer needed — it’s LEGAL! In the back yard or side yard or front yard or all of them, on the balcony in a planter, in a sunny room in a planter. Dirt cheap and simple. Hydroponics companies are in big trouble, come to think of it.

knee-deep
Guest
knee-deep

But it also,like CWEB being a leader,subject to takeover..much higher.

charlie1030
Member
๐Ÿ‘35

It appears that Motley Fool will be making this known to the public on July 30 on a special investor presentation “The Marijuana Moment: How You Could Profit From the Rise of Cannabis.”

Chuck P
Guest
Chuck P

Now this will be more of a pump and dump show IMHO. The pot sector, with a few exceptions is in the dumps and probably will be for the second half 2019, and longer. If your looking for LONG term buy and hold, there are certain leaders and now is about the right time to bargain hunt the lows. Charlottes Web is one of them.

Dave S.
Guest
Dave S.

“I will not trade in any covered stock for at least three days after publication, per Stock Gumshoeโ€™s trading rules.”

Travis, I have to admit to being a wee eensy bit surprised that you started a small position just BEFORE publication, which would seem to be, of these sorts of sins, a greater one than buying a day or two afterward, as it does smack of pump-and-dump. In a small way, of course. No doubt we all agree you are a paragon of virtue and honesty; and that’s the reason for the surprise. Thanks for a fine write-up.

Chuck P
Guest
Chuck P

You got to believe in what you’re righting about, so why not own some. As long as it is disclosed, I don’t see a problem. and Travis does have the three day rule policy.

tsivalls
Irregular
๐Ÿ‘18
tsivalls

I think EVIO is going to be a more important MJ stock to place alongside IIPR….also MEDIF.

Bruce Macomber
Guest
Bruce Macomber

CWBHF appears to have reached high just short of $23.00 and current is about $14.56.

Chuck P
Guest
Chuck P

Buy, buy, buy – proceed with caution for entry. Their sales story is looking real good for a long term hold. Could even be a potential buyout in time….

kmitch
Member
๐Ÿ‘0
kmitch

A “little nibble” is about right. Maybe it can progress to “a bite,” “a large bite,” or maybe someday to a “core position.” I guess since we’re supposed to own more than one stock that it can never be the “whole enchilada.” I took a nibble myself a few months back and put it in a separate “black box portfolio” of .67% positions. I try with limited success not to look at these stocks. Your article tempted me to take a peek at CWBHF (down 20%), and I was immediately reminded why I try not to look until three years… Read more ยป

Ken Dolezal
Guest
Ken Dolezal

Unless you are reasonably quick all of you who own and CBD stock are going to lose money. This is like the ethanol industry repeating itself. Good luck to all.

Chuck P
Guest
Chuck P

The CBD market is a different line up that is proving itself beneficial for consumers, and very lucrative for store owners. Met someone doing $400k/month in retail sales out of their brick and mortar stores.

JBW
Member
๐Ÿ‘14
JBW

I got lucky on this one. It was a Casey recommendation last August. Got in around $8.00 and out at around $20 in April, no real planning here just got lucky on the exit, when I started getting a little nervous. It may still go up but I’m an old guy and have been trimming some winners. Someone below mentioned IIPR. This was also a Casey recommendation back in January 2017. I got in around $18, stopped out a couple of times but bought right back in. Took all of my original investment out in March of this year at… Read more ยป

bunion132
Irregular
๐Ÿ‘97

At least this time around the timing of the tease is reasonable. All too often, by the time newsletters publish the tease, the big money has been made and institutions are getting ready to sell/short sell the stock being bought by unsuspecting retailers. From a technical viewpoint, Charlotte’s Web — as with anything pot-related these days — is in the almost-extremely-oversold zone. Therefore, buying now or after another dip would make for a good entry point, I think, as the stock will soon have nowhere else to go but up.

odubola
Member
๐Ÿ‘0
odubola

I agree fully that eventually as good pot stocks will have nowhere to go but up! I think that strategies are different, and investors who are extremely short term focused will only be hurting! It’s always better for your health to have a long term focus. Good all to us all!

James Tutsock
Guest
James Tutsock

I read about cweb’s latest line of CBD products for different “conditions”. One for sleep adds melatonin, another added theanine which I have taken over the years to no effect. Which is my point, CBD is not going to do anything for I’m guessing a great majority of people that use it so better stuff it with some other ingredients just in case. I will be personally trying pure full spectrum organic CBD soon. I recently discovered that smoking pot drastically reduces, in fact darn near eliminates my fibromyalgia pain, and although I have been smoking a few times a… Read more ยป

James Tutsock
Guest
James Tutsock

All that being said in my last post it will take years for this to all shake out and in the meantime CWEB is properly positioned to take a greater portion of a fool’s money through as Travis hit on, branding. They are up there with the best. Watch CTST tomorrow, they should sky rocket on this news of firing the CEO and other bigwig. They have big time new board members stepping in since the scandal broke.

Mike
Guest

Thanks once again, I always take your evaluations as gospel. Like most, we have all been hearing the hype on these stocks, most have not panned out, but CWEB may be one of the only early breakouts I have tracked,. I fear with Trumps new announcement of stopping addictive narcotics epidemic nationwide, and the fact he has followed through on all previous such promises, and since he is so against such, what happens if he tells FDA to stop all such drugs, is hemp products alone going to be enough revenues for marijuana industry.

Fakename
Guest
Fakename

What’s strange is Tom Gardner already announced his first ever marijuana stock in a previous free video within the last month or so. It was indeed Charolette’s Web. He said it was his “first and only” marijuana stock recommendation. Don’t know why they’re making another video on it.

madmark
Member
๐Ÿ‘7
madmark

So, are you saying that tens of thousands (or whatever number it is) of MF’s subscribers have already been alerted to this and potentially bought the stock?

I see a spike in mid-June at ~$17, which peaked about three weeks later at $23.65.

I’m just wondering how many MF subscribers will see this for the first time next Tuesday.

Michael
Guest
Michael

I received an e-mail at 9:32 am on 7/25 from Shannon Jones, Motley Fool Senior Analyst titled Tom Gardner’s #1 marijuana stock. (Note: just the week before I did sign up for Stock Advisor – hoping to pull of 2 years for only $3 – I’ll report back if it worked in a couple of months). 55 minutes later at 10:27 am I received an e-mail from Travis titled: Tom Garner’s First Ever Marijuana Stock Reco. The timing was spot on. The e-mail has much of the same content Travis repeated above and hawks a video to be shown on… Read more ยป

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Marion
Guest

1.) Any info? Just read an info promo for Lombardiโ€™s news letter ,โ€Micro Cap Tech Reporterโ€ and his pitch clues for his buzzing secret ticker for a โ€œtinyโ€ internet tech software platform company popular and growing, growth as it is used by on-line retailers in a sort of hidden step in selling transactions! Seems to be a winner for its highly efficient transaction processing software developed from the ownerโ€™s reportedly highly skilled โ€œcode language writing,โ€ so the service is used by 800,000 on-line retailers! 2.) Heard of this? By the way on what could have been โ€œeditorial advertisingโ€ but not… Read more ยป

mazza2711
Member
๐Ÿ‘0
mazza2711

The Ticker is not coming up on my Brokers list of companies.

steveflick
Irregular
๐Ÿ‘652

I bought CWBHF on OTC at Fidelity broker 2/12/2019.

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contractorr
Member
๐Ÿ‘55
contractorr

Not sure about pot stocks. I been tracking about 25 of them and only 3 of them shows some life. Rest are down by over 15% in last 15 months.

goblue16
Irregular
๐Ÿ‘12
goblue16

I belong to the National Institute for Cannabis Investors and Charlottes Web has been recommended by them for a long time. I have bought and sold a few times and it is one the MJ stocks I am most confident about along with Canopy.

E.T.
Guest
E.T.

Did anyone red about the sml.co.who โ€˜s testing every single MJ.product,before sale?

madmark
Member
๐Ÿ‘7
madmark

Charlottes Web (CWBHF) really moving on volume today. Up 10%. Name of MF’s pick must be leaking.

madmark
Guest
madmark

So was it announced today? I think it was supposed to be at 1pm EST. And was it announced to all who signed up or did people have to subscribe to actually hear the name?

I see the stock started run a bit right at 1pm.

Fernand
Guest
Fernand

Actually, market cap its right, its 700Million US dollars, acording to the Toronto Stock Exchange, and they cant be wrong. Its very cheap right now.

Shares Out.: 39,772,154
Total Shares (All Classes): 43,156,479
Prev. Close: 21.95
Low: 0.00
VWAP: 22.921231
Market Cap: 921,918,530
Market Cap (All Classes)*: 1,000,367,183

madmark
Member
๐Ÿ‘7
madmark

The stock is formally recommended on Fool’s Stock Advisor service today.

cka1946
Member
๐Ÿ‘17

I listened to Matt’s webinar for the first time… it was informative and I liked what he had to say….some of his stocks are too expensive for me…I checked on CWBHF , should I buy at this price or do you think it will back off some? It seems to be on solid ground.

steveflick
Irregular
๐Ÿ‘652

I bought CWBHF Charlottes Web in mid-February. Price now under $20.00 – may be good time to purchase.

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